Additional Types of Food Franchises Report 2013

September 5, 2013

We have covered many types of food franchises (full service, fast food, coffee, pizza, ice cream and frozen yogurt) within the other sections of our overall food report. Though these food franchises cover a large percentage of the industry, they are only a fraction of what’s available to prospective franchisees. This report summarizes five additional segments of the food franchise industry that continue to attract consumer attention.

Bakery Franchises
There aren’t many other more diverse industries than the baked goods industry, with the range of products sold including bread, bagels, cakes, pretzels, cookies, donuts and cupcakes. According to the American Society of Baking, the United States commercial baking industry employs over 300,000 people and brings in annual revenue of close to $100 billion. Well known bakery franchises include Auntie Anne’s, Cinnabon and Corner Bakery Cafe.

In addition, because coffee is a natural companion to baked products, a number of bakery franchises offer coffee as part of their product range. For example, Dunkin’ Donuts, a top franchise in the coffee franchise industry, is also a top franchise in the bakery franchise industry. Sandwiches are also a common menu item at many bakeries.

A key factor contributing to the baking industry’s growth is the long-growing consumer demand for convenient, ready-to-eat foods. This demand is fueled by busier consumer lifestyles with less time for food preparation. Baking franchises have expanded alongside the growing desire for quick snacks and meals.

Trends in the baking industry are largely related to consumer lifestyles and eating trends. Growing health awareness allows bakeries to incorporate even more nutritious food production and fortified baked products into stores. Some bakery franchises offer miniature versions of popular baked products as well, to help satisfy the consumer demand for healthier products, including low-carb and gluten-free.

Bakeries also reflect America's melting pot. Ethnic cuisines and flavors are becoming increasingly popular. Many items gaining traction reflect the increase in Hispanic and Asian populations within the U.S.

Convenience Store Franchises
Top convenience store franchises include 7-Eleven, ampm and Circle K. The U.S. convenience store industry covers nearly 150 thousand stores and more than $680 billion in annual sales. There are six formats of convenience store, or c-store, as defined by the National Association of Convenience Stores (NACS): kiosk, mini convenience store, limited selection convenience store, traditional convenience store, expanded convenience store, and hyper convenience store. The industry, particularly in the U.S., is in the midst of a transition. Once a stop along the way for motorists, c-stores are seeking to become a consumer destination.

The main way c-stores are accomplishing this goal is through food service. According to the NACS, “while convenience stores have offered fresh, prepared foods for years, it is only over the last decade that the trend has accelerated. The result is that convenience stores have continued to evolve from gas stations that happen to sell food to restaurants that happen to sell gas.”

Another way c-stores are expanding is by adding new services. Market leader 7-Eleven began a partnership with online retailer Amazon in 2013 which allows customers to pick up small package deliveries in certain locations. The move could help c-store franchises to attract impulse business from those coming to retrieve their deliveries.

While expanding beyond gas, cigarette and snack sales is a main focus for U.S. based c-stores, they are not alone. C-stores in many other countries are also diversifying their business footprints in the local marketplace. For instance, Indonesian 7-Eleven outlets are designed to resemble cafés more than convenience stores. Such locations feature sitting areas with tables and chairs, free Wi-Fi service, and even valet parking for scooters.

Consumer interest in specialty foods—particularly organic, natural and gourmet items—is a major factor in this growth according to market analysts. Additionally, healthy-eating themed food baskets are gaining popularity as consumers become even more interested in healthier lifestyle decisions.

This industry segment is on the upswing with annual sales estimated around $11 billion. According to Matt Hudak, U.S. country analyst at Euromonitor International, the food gifting industry segment is experiencing growth and offers untapped opportunities in the realm of customization. If franchises “can give consumers the level of personalization and ease that they want when giving gifts, the food gifting trend could be set to stay for the long-term.”

The target market for these franchises is broad in scope. Individuals, families and corporate gift givers are specific targets. Demand is often greater during certain seasons, yet consistent year-round. Numerous potential occasions for food gifting include sympathy and “get well soon” situations, thank you gifting, anniversaries, promotions, weddings, and housewarmings. Traditional, cultural, and family-focused holidays and celebrations of all sorts are also excellent opportunities for this industry to serve consumers looking for creative gift ideas.

Juice and Smoothie Franchises
Consumer desire to live a better life is the driving force of the juice and smoothie franchise industry. Similar to the ice cream and frozen yogurt industries, these franchises often experience seasonal fluctuations. In fact, the highest concentrations of smoothie businesses are located in the Southeast and Western regions of the nation, reflecting a link between climate and demand. Smoothie King, Jamba Juice and Planet Smoothie are among the top franchise brands with additional industry presence in a variety of locations.

Competition is fierce not only within the general $3.5 billion juice and smoothie industry, but also among other food franchises offering similar menu items. According to recent information from FranData, there are more than 70 franchise brands with smoothies on their menu, and of those brands not even half (about 30 of the 70) serve smoothies as their primary product. Other competitors include coffee businesses, fast food chains, ice cream stores and frozen yogurt shops.

According to the Juice and Smoothie Association (JASA), smoothies first became popular in the United States in the 1960s. Specialized juice and smoothie bars became linked with the sports and fitness trends of the 1980s. Throughout the 1990s and early 2000s, the industry moved from niche market to mainstream fixture for consumers seeking healthy snack and meal alternatives. Non-traditional location settings such as hospitals, airports, colleges and hotels have also played a large role in the growth of the industry.

Future industry growth involves cultivating new markets, which depends on menu innovation. One trend in juice and smoothie franchise expansion is the use of exotic flavors. “There is clearly a trend toward more innovative and less common juice flavors,” says Maeve Webster, Datassential’s director of research. New markets can also be reached by providing easier access for consumers. Jamba Juice demonstrated this by introducing self-service venues called “JambaGo” in grocery stores, convenience stores, and schools.

Vending Machine Franchises
Many entrepreneurs find vending machines attractive because of low overhead and flexibility. The overall vending machine operators industry brings in an estimated $7 billion annually. Franchises that lead the way in the industry are Fresh Healthy Vending and U-Turn.

Food vending machines have come a long way since they brought soft drinks to the masses. Nowadays, they offer a variety of goods beyond cold drinks and snack foods. Here is a sampling of additional food items that are currently sold via vending machines:

Coffee & Hot Beverages

Sandwiches

Pastries & Desserts

Salads

Fresh Fruit & Vegetables

Smoothies

Soups

Dietary Supplements

When researching vending opportunities, verifying whether the brand concept offers an independent business or franchise opportunity is important. Though similar, each mode of business involves different guidelines and contract terms that each potential investor must consider. Many vending machine opportunities actually fall under the category of independent business opportunities rather than franchising.

Investing in a Franchise Important Note: The provisions and fees illustrated in this report are only the most common and not a complete listing. Please review the Franchise Disclosure Document (FDD) for all provisions and fees related to investing in a specific franchise.

There are several factors that must be thoroughly considered before investing in a franchise business and many prospective franchisees first consider how they will finance their investment. The financial investment, with an overview provided below, can be separated into two parts: the initial investment and ongoing fees.

Initial Investment
The range of investment between franchises can be large due to variations in business systems and execution requirements. The following charts demonstrate this by comparing initial costs associated with opening one of the 10 sample franchises presented.

Initial costs associated with opening a franchise include the franchise fee, training expenses (such as travel and living expenses, not the actual training courses), grand opening marketing costs, and more.

A significant cost within the initial investment is the franchise fee. This part of the overall initial investment grants franchisees the right to use franchisor trademarks, service marks and other branding. It also gives franchisees access to the business system of the franchisor, including training opportunities.

One major variable in the initial franchise investment is the cost of real estate. Some franchisors may not include land or real estate costs in estimates because of the price variation between locations and whether their franchise system requires a new rather than leased building.

Another major variable in the graph below is the variety of industries represented by the 10 listed franchise samples. Different franchise industries often have unique requirements based on the specific nature of each concept.

Ongoing Fees
The length of the initial franchise agreement term for the 10 sample franchises range from five to 20 years. Franchise term length is dependent upon not only the franchise system, but whether a franchisee is seeking a traditional or non-traditional location. Some franchise term lengths also depend on franchisee lease terms.

Throughout the length of the agreement there will be costs for being a part of the franchisor’s business system. These costs include items such as royalty fees, charges for technical support and marketing costs. The most common is the royalty fee and below is a look at royalty rates for each of the sample franchises. As illustrated, there are many ways to assess this fee, and some franchises choose not to assess a royalty.

In addition to the regularly assessed fees, other fees are charged on an “as needed” basis such as audit fees or costs for additional training. All prospective franchisees should do their research and carefully review a franchisor’s FDD for more detailed information on all systems, procedures and costs involved.

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